Businesses that sell online face more fraud risk than ever before. In Stripe’s recent fraud trends survey, nearly two-thirds of business leaders said it was becoming increasingly difficult to combat ecommerce fraud, and roughly the same proportion expect to lose more money to fraud this year than last.
That’s shocking news given the challenging economic environment businesses are already facing. Juniper Research found that merchant losses to online payment fraud will exceed $200bn between 2021 and 2025 – money that’s definitely needed elsewhere. The importance of cybersecurity and data protection in the UAE has never been more crucial. Total e-commerce in the UAE reached over $5bn in 2021 and is anticipated to surpass $8bn by 2025.
Likewise, with continued remote working, the thirst for digital services has accelerated, and we’re seeing more new businesses coming to market to fuel this demand. Nearly 200 licenses for ecommerce businesses were issued in May 2020 and H1 2020 saw a 300 percent boom in demand for digital commerce, a trend that has continued to rise. Robust data security and fraud mitigation remain vital to safeguarding the future of the region’s digital economy.
Fraud trends you should know about
By analysing billions of payment transactions which Stripe processes every year, we can reliably identify new fraud patterns and trends. Here are some major developments business owners should be aware of.
One is the increase in card testing attacks. Some fraudsters obtain long lists of stolen credit card data on the dark web, or using phishing or spyware. In order to check whether these credit cards are still active, they use botnets to make small purchases on websites – thousands of purchases over a very short period of time, leading to a surge of traffic on affected websites.
The attacks can negatively impact businesses in a number of ways, including higher payment processing costs, failure risks, or simply by immobilizing their websites under heavy traffic. Card testing has increased a lot recently, with 40 percent more businesses exposed to such attacks today compared to before the pandemic.
Finally, our fraud analysis revealed that some types of businesses are more vulnerable than others. We found that subscription businesses – specifically B2C companies – struggle the most with fraud.
As the UAE’s subscription economy continues to flourish, and adoption of subscription services increases – from food (Talabat, Deliveroo, Instashop), fashion (Noon, Namshi) and streaming (Netflix, OSN, Starzplay), to home services (JustMop, Washmen) and transport (Careem) – this is an area that needs attention today.
That’s because a subscription to a streaming service, for example, can be quickly bought and resold by fraudsters, without any shipping time involved. More than 75 percent of B2C businesses reported that over the last year, their manual review load had increased, and they’d had to divert additional resources to fight fraud.
Effective fraud mitigation allows businesses to break new grounds
Fraud can also not only hamper business’ domestic operations, but also seriously constrain expansion into new markets. Our research revealed that more than 50 percent of businesses have curtailed expansion plans due to fraud concerns.
Stripe has supported many UAE companies in enabling them to launch products into new territories, both in the GCC and into international markets outside the Gulf – for instance, athleisure brand Squatwolf, and the sustainable fashion brand The Giving Movement. By alleviating fraud concerns, the region’s best and brightest businesses can overcome these crippling stumbling blocks, and unleash their true potential on the global stage.
Why fighting fraud is hard
Effectively preventing fraud is a dilemma: After all, more stringent fraud prevention measures often deliver more false positives and a worse overall customer experience. False positives can cost a business money and damage its reputation.
One in three consumers say they wouldn’t shop again at a business if their payment is declined without a legitimate reason. The lost revenue from blocking too many legitimate customers may not be worth marginal reductions in a business’s fraud rate.
For that reason, thresholds and rules of a company’s fraud detection model should be adjusted as a function of its risk appetite: the higher the profit margin, the less sensitive the model should be, because the higher the margins, the more money a business stands to lose from each false positive.
Machine learning (ML) and big data can help optimise a fraud detection model. More specifically, it’s useful to have a payments partner that can train a model with a lot of data. In total, businesses processed more than $640bn in payments through Stripe in 2021. From the vast amount of transactions we see, we can identify new fraud patterns and trends with the help of machine learning, and act accordingly.
What businesses can do
Machine learning is very effective at fighting fraud. But businesses shouldn’t rely on their payments provider alone. Here are a few more ways to reduce the impact of online fraud on your business: Collect more relevant information during checkout, which will help you better verify a customer’s legitimacy. For example, make sure to collect the customer’s name and email address. This additional information can result in better machine learning detection of fraud and give you more evidence to submit during a potential dispute.
Explore other payment methods. The right set of payment methods can offer flexibility to customers and reduce the risk of fraud. Digital wallets, like Apple Pay or Google Pay, require additional customer verification (such as biometrics, SMS, or a passcode) to complete a payment, resulting in lower dispute rates. Similarly, most bank debits add an extra layer of security and reduce the possibility of disputes.
Girard Moussa, Head of UAE at Stripe